Chapter 11 – Current Liabilities and Payroll Accounting
Serial Problem — SP 11
Serial Problem — SP 11, Business Solutions (30 minutes)
1.
Gross pay (8 days x $125 per day)………………..…….…….. $1,000.00
FICA Social Security tax deduction (6.2%)*……………………………………………….…… $ 62.00
2. 2016
Feb. 26 Wages Expense…………………………………………………………………….……….….. 1,000.00
FICA—Social Security Taxes Payable……………………………….…….…… 62.00
FICA—Medicare Taxes Payable………………………………..……….…….…. 14.50
Employee Federal Income Taxes Payable…….…..….………………… 159.00
Cash……………………………………………………………………………………………. 764.50
To record payroll period.
3. 2016
Feb. 26 Payroll Taxes Expense………………………………………………………….…….……..
122.50
FICA—Social Sec. Taxes Payable…………………………………………………. 62.00
4. 2016
Mar. 25 Accounts Receivable – Wildcat Services…………………………………………….. 2,912
4%.
Mar. 25 Cost of Goods Sold…………………………………..……… 2,002
Merchandise Inventory…………….…….……….….. 2,002
To record cost of March 25 sale.
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Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem
Bug-Off Exterminators (100 minutes)
Part 1
a. Correct ending balance of cash and the amount of the omitted check
Reconciled balance……….……….….......$15,750
Balance per books…………..…….…….….$17,000
Plus interest earned………………………… 52
Less service charges………………………. (15)
b. Allowance for doubtful accounts
Unadjusted balance………….……….……. $ 828 credit
Anticipated write-off………….……….…... (679) debit
Revised unadjusted balance………..….. 149 credit
c. Depreciation expense on the truck
d. Depreciation expense on the equipment
Sprayer Injector
Cost…………………………………….……….… $27,000 $18,000
Less salvage value…….……….………..... (3,000) (2,500)
Depreciable cost………..…….……….……. $24,000 $15,500
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Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Months of services provided………………………….. 5
Total earned ($320 x 5 months)……………….……... (1,600)
Overstatement of revenue ($3,840 – $1,600)...... $ 2,240
f. Warranty expense
Adjusted services revenue for the year (from e).... $57,760
Warranty percent………………………………………….. 2.5%
Warranty expense (estimated)…………….….…….. $ 1,444
Estimated warranty liability
g. Note payable and interest accrual
The note originated on December 31, 2015. The first time interest
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Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2015
Unadjusted
Trial Balance Adjustments .
Adjusted
Trial Balance
Cash …………………………….... $
17,000
(a) $1,250 $ 15,750
Accounts receivable.............. 4,000 (b1) 679 3,321
Trucks.…….…….…...........…...
32,000 32,000
Accum. deprec.–Trucks......... 0(c) 6,000 6,000
Equipment…………………….….
45,000 45,000
Accum. deprec.–Equip.......... 12,200 (d) 6,100 18,300
payable……………………………
D. Buggs, Capital..…......…..... 59,700 59,700
D. Buggs, Withdrawals..........
10,000 10,000
Extermination
Deprec. expense–Trucks....... 0(c) 6,000 6,000
Deprec. expense–Equip......... 0(d) 6,100 6,100
Wages expense…………………
35,000 35,000
Interest expense….............…. 0 0
Rent expense…………………… 9,000 9,000
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Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem (Continued)
Part 3
2015
(a) Miscellaneous Expenses………………………….……….… 15
Accounts Payable……………………………………………..… 1,287
Interest Revenue………………………………………….… 52
Cash………………………………………………………….….. 1,250
Adjust cash account. (Separate entries are acceptable.)
(d) Depreciation Expense—Equipment………..…….…….… 6,100
Accumulated Depreciation—Equipment.............. 6,100
Depreciation on equipment.
(e) Extermination Services Revenue……………….……….… 2,240
Unearned Services Revenue………….……….………. 2,240
Adjust for unearned revenues.
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Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem (Continued)
Part 4
BUG-OFF EXTERMINATORS
Income Statement
For Year Ended December 31, 2015
Revenues
Extermination services revenue............... $57,760
Sales……………………………….……….……….… 71,026
Interest revenue……………………………..……. 924
Wages expense……………………………….…… 35,000
Interest expense………………………….………. 0
Rent expense………………………….……….….. 9,000
Bad debts expense………………………….…... 551
BUG-OFF EXTERMINATORS
Statement of Owner’s Equity
For Year Ended December 31, 2015
D. Buggs, Capital, December 31, 2014……………..….…. $ 59,700
Add: Investments by owner……………….……….……….. 0
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Education.
Chapter 11 – Current Liabilities and Payroll Accounting
Comprehensive Problem
Part 4 (concluded)
BUG-OFF EXTERMINATORS
Balance Sheet
December 31, 2015
Assets
Current assets
Cash……………………………….…….……….………. $15,750
Accounts receivable………………………….…….$ 3,321
Allowance for doubtful accounts..……......... (700) 2,621
Total plant assets………………………….………... 52,700
Total assets………………………………………..…….. $82,771
Liabilities
Current liabilities
Accounts payable…………..…….……….………..$ 3,713
Equity
D. Buggs, Capital………………………………………. 58,974
Total liabilities and equity………………………….. $82,771
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Chapter 11 – Current Liabilities and Payroll Accounting
Reporting in Action — BTN 11-1
1. Times interest earned
($ millions) 2013 2012 2011
Net income……………………………………….….$37,037 $41,733 $25,922
2013; assumed for 2012 and 2011)………… 136 100 100
Income before taxes and interest………….$50,291 $55,863 $34,305
Analysis comment : Apple reports interest expense of $136 million for
2013. Assuming Apple had interest expense of $100 million for 2012
and 2011, Apple’s risk of not being able to cover its interest expense
2. Loyalty reward liabilities arise when a customer makes a purchase
under a frequent purchase program. It is an estimated liability as the
3. Total accrued expenses for 2013 equal $13,856. The six components
that make up accrued expenses are: Accrued warranty and related
4. The solution depends on the financial statement information accessed.
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Chapter 11 – Current Liabilities and Payroll Accounting
Comparative Analysis — BTN 11-2
1. Apple—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income……………………………………….….$37,037 $41,733 $25,922
Times interest earned ratio..…….…....... 369.79a558.63b343.05c
a$50,291 / $136
b$55,863 / $100
c$34,305 / $100
Google—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income (loss)…………………….……….….$ 12,920 $ 10,737 $ 9,737
a$15,285 / $83
b$13,419 / $84
c$12,384 / $58
2. Apple reports interest expense of $136 million for 2013. This problem
assumes that Apple reports interest expense of $100 million for 2012
and 2011. Apple and Google both are in strong positions in their ability
to make interest payments should their income decline as implied by
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